Silver Price Forecasts: XAG/USD approaches $66.00 favoured by a softer US Dollar

On Monday, silver prices (XAG/USD) surged above $65.80 during the European trading session, following a bounce from the $63.50 level observed on Friday. The strength of silver is attributed to the weakness of the US Dollar (USD), as recent American economic indicators have dampened expectations of Federal Reserve interest rate increases throughout the year.

Friday's US data revealed that Retail Sales declined by 0.6% in July, falling short of the anticipated 0.1% increase. This follows softer producer and consumer price figures and a disappointing Nonfarm Payrolls report in the previous week. Consequently, investors have adjusted their expectations for a Fed rate hike in September from over 50% to 30%, as indicated by the CME Group's FedWatch Tool.

Silver prices breached the bullish Head & Shoulders pattern level of $67.00 last week and have since been consolidating, with bearish attempts remaining limited above previous highs around $63.30. The daily chart for XAG/USD shows a positive momentum, as evidenced by the Relative Strength Index (14) hovering above 60 and the Moving Average Convergence Divergence (MACD) line maintaining a firm positive reading near 0.81.

Traders are cautious, as silver prices are currently capped below the $66.00 level, which represents the near-term target and the June 22 high at $67.17. Higher up, there is a significant supply zone marked by the June 17 high of $71.56 and the 200-day Simple Moving Average (SMA) around $71.70. Conversely, the $63.30 area is anticipated to act as a support for sellers, preceding the August 6 and 7 lows around $62.00 and the late July lows in the mid-range of the $56.00s.

Silver, a precious metal widely traded by investors, serves as a store of value and medium of exchange, albeit less popular than gold. Despite its lower popularity, silver is often considered by traders for portfolio diversification due to its intrinsic value or as a hedge during periods of high inflation. Investors can acquire physical silver in the form of coins or bars or trade it through Exchange Traded Funds that mirror its price on global markets.

Various factors influence silver prices, with geopolitical instability or fears of a deep recession potentially driving up silver prices due to its perceived safe-haven status. As a yieldless asset, silver typically appreciates when interest rates are low and declines when rates rise. Silver's price movements are also heavily dependent on the behavior of the US Dollar (USD), as the asset is denominated in dollars (XAG/USD).

A robust dollar generally keeps silver prices restrained, while a weak dollar can boost silver prices. Other determinants of silver prices include investment demand, mining supply - silver is far more abundant than gold - and recycling rates. Industrial sectors, such as electronics and solar energy, utilize silver due to its exceptional electrical conductivity, which surpasses that of copper and gold.

A rise in demand for silver can elevate prices, whereas a decline tends to depress them. Global economic conditions, particularly in the US, China, and India, can contribute to silver price fluctuations. The US and China heavily rely on silver for their industrial sectors, while India's demand for silver is driven by its consumer jewelry market.

Silver prices tend to mirror gold's movements, as both are considered safe-haven assets. The Gold/Silver ratio, indicating the number of silver ounces required to match the value of a single ounce of gold, can help determine the relative valuation of both metals. Some investors view a high ratio as an indicator that silver is undervalued or gold is overvalued, while a low ratio may suggest the opposite.